What does progressive income tax means to Singaporeans

In one of her recent posts, fellow finance blogger, “Lady, You Can be Free” posted an article on her income tax payable. She was shocked that her tax payable was more than $10,000 for this year and so she tried to figure out how to save on her tax through Supplementary Retirement Scheme. $10,000! When I saw the amount, I was impressed by her income because compared to her, my annual income is much lower, so my tax payable is only a fraction of hers. Unless you are a rich man in Singapore, this is not a small sum to be sniffed at, so it is understandable that she felt the pinch.Now, if you faced the same predicament as the lady blogger, congratulation! This is because you belong to the higher income earner. Of course this would come across as cold comfort to you, but going forward, the government has declared that the income tax system is going to be “progressive”. Under this new income tax system, the rich will have to pay more income tax compared to the less well-off.  In fact, from last year, the tax rates were adjusted for YA2012. If you look carefully at the rates below, taxpayers earning below $100,000 pay lesser tax in 2013 compared to 2011 and 2012. However, those earning above $100,000 has to pay more tax. Most Singaporeans, especially those who earned more in 2013, didn’t realize the changes probably because of the tax rebates dished out by the government in recent years.
The rationale for such a tax system was because data collected by Inland Revenue Authority revealed that resident taxpayers with annual income less than $100,000 accounted for only 11 per cent of all personal income tax collected in 2011. The remaining 89 percent comes from those who earned more than $100,000 annually. What was more interesting was that the ultra rich – those earning more than $1 million  – contribute to 20 percent of all personal taxes.

Tax rates for resident individuals

From YA 2012 onwards

Chargeable IncomeRate (%)Gross Tax Payable ($)
First $20,000
Next $10,000
0
2
0
200
First $30,000
Next $10,000

3.50
200
350
First $40,000
Next $40,000

7
550
2 800
First $80,000
Next $40,000

11.5
3 350
4 600
First $120,000
Next $  40,000

15
7 950
6 000
First $160,000
Next $  40,000

17
13 950
6 800
First $200,000
Next $120,000

18
20 750
21 600
First $320,000
Above $320,000

20
42 350

For YA 2013, a personal tax rebate of up to a maximum of $1,500 is granted as follows:
30% rebate for taxpayers below 60 years of age as at 31 Dec 2012
50% rebate for taxpayers 60 years of age & above as at 31 Dec 2012

For YA 2010 to 2011

Chargeable IncomeRate (%)Gross Tax Payable ($)
First $20,000
Next $10,000
0
3.50
0
350
First $30,000
Next $10,000

5.50
350
550
First $40,000
Next $40,000

8.50
900
3 400
First $80,000
Next $80,000

14
4 300
11 200
First $160,000
Next $160,000

17
15 500
27 200
First $320,000
Above $320,000

20
42 700

For YA 2011, a personal income tax rebate of 20%, up to a maximum of $2,000 is granted.

While paying income tax is unavoidable, Singaporeans can certainly manage their wealth by developing secondary incomes – commonly known as passive incomes. Passive incomes are sources of incomes which do not require you to actively work or labor in exchange for monetary rewards. Effectively, you are making money even when you are sleeping. Of course there are trade-offs to make. When we are working for a pay check, we are exchanging our labor or time in exchange for monthly salaries. Likewise for passive incomes, we are exchanging intangible commodities in return for monetary rewards.

The beauty of passive income is that it allows you to focus your energy to actively work for your main income and at the same time provides you additional sources of incomes. Some of my readers have lamented that “its easier said than done”. To a certain extent I do agree with them. After all, making money is never easy, let alone creating additional sources of incomes. But if you look at a few of my fellow bloggers’ postings, a number of them had collected quite a fair bit of dividends from their stock investment portfolio. One of them even claimed he made $17,000 from his dividend for one particular month! I believed they had done much homework researching which shares to invest and then pump in their hard-earned savings to invest in these stocks.

Whatever the case, it has been proven that you can create your own sources of passive incomes if you wanted to. And it doesn’t take a financial guru to do so, everyone, including you and me, can create our own sources of passive incomes.

Magically yours,
SG Wealth Builder

Updated: January 10, 2015 — 2:36 pm

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